LTC Bullet: Medicaid Reform Proposal Might Save Medicaid LTC and Unleash LTCI

Thursday, February 27, 2003


LTC Comment: Current federal Medicaid law does not allow states to target their LTC programs to the genuinely needy. Consequently, middle class and affluent people end up in nursing homes on Medicaid unnecessarily, few people plan or insure for long-term care, and state Medicaid budgets are bursting. HHS Secretary Tommy Thompson has proposed a creative solution but "senior advocates" and governors are balking. More after the ***news***.

*** This Bullet is sponsored by the National LTC Network, "Partners in Long-Term Care Insurance Coverage, Design, Education and Distribution." Visit the Network online at . Contact Allen Mansfield, Executive Director, at 800-996-6789 or for more information. Thanks so much to Network members for their generous support of the Center. Won't you help too? Go to to sponsor an LTC Bullet. Find out how you can sponsor other Center activities (e.g., articles, speeches, conference exhibits) by contacting Amy Marohn at 425-377-9500 or .***

*** Steve Moses will conduct full-day Long-Term Care Graduate Seminars in Green Bay, Wisconsin on March 13 and in New York City on March 25. Contact Amy McDougall to register (425-377-9500 or ). For details on the program, go to . ***

*** One of the most frequent questions we're asked is "What are states doing to control the abuse of Medicaid by people who could have, should have and would have planned and insured for long-term care?" Our thanks to James Leich, President of the Indiana Association of Homes for the Aging, Inc. and formerly Director of the Indiana Long-Term Care Partnership Program, for bringing the following article to our attention: Kevin Corcoran, "Nursing Home Residents' Property Targeted: Legislation Would Make It Easier for State to Claim Proceeds from Hoosiers' Houses," Indianapolis Star, February 26, 2003, . Leich is quoted in the article as saying: "Medicaid's becoming an inheritance-protection program, and we cannot afford to let that happen . . .." To Melanie Bella, Indiana's Medicaid director, "who may have to trim another $692 million in projected Medicaid spending if lawmakers freeze the program's budget, repealing the property exemption seems like a good place to start. 'What amazes me is that when it's a program for moms and kids, Medicaid is a poor people's program,' Bella said. 'When it comes to nursing homes, we become this villain that's taking things from hard-working citizens of the state.'" Follow the link above to the full article for an interesting read. ***

*** Our latest donor-only zone content sent during the past few days includes:

LTC E-Alert #3-016--No Help for Nursing Homes in Omnibus Appropriation


If you already qualify for The Zone, you can click the following link, enter your user name and password, and go directly to the latest donor zone content and the archives: . If you do not already qualify for The Zone, mail your tax-deductible contribution of $150 or more to the Center for Long-Term Care Financing, 2212 Queen Anne Avenue North, #110, Seattle, WA 98109. Then email your preferred user name and password (up to 10 characters each). You can also contribute online by credit card or direct withdrawal at . ***


LTC Comment: Medicaid long-term care expenditures, mostly for nursing home care, place enormous strains on state and federal budgets. Lately, pushed to the fiscal wall, most states are considering drastic cuts in Medicaid eligibility, services, and/or provider reimbursements. All of the options to constrain costs are unattractive.

Recently, Secretary Tommy Thompson of the Federal Department of Health and Human Services, offered states a lifeline. He proposed to increase federal Medicaid matching funds to the states by $3.25 billion in 2004 and $12.7 billion over the next seven years. Furthermore, he wants to give states "carte blanche" to administer their Medicaid programs as they see fit for the one-third of program recipients--representing two-thirds of total expenditures--who fall into "optional" coverage groups. The idea is to give states the freedom to administer this portion of their Medicaid programs more efficiently and cost-effectively so they don't have to slash eligibility groups, services or reimbursements indiscriminately just to comply with restrictive federal rules.

The good news for states in this proposal is that they would be able to modify and target their Medicaid programs without seeking complicated hard-to-obtain federal waivers. For example, states could restrict Medicaid nursing home benefits (an optional service category) to people who are genuinely needy, which current federal law, with its unlimited exemptions for homes, businesses, autos, burial funds, etc. and its gaping loopholes like "half-a-loaf," "just say no," "Medicaid-friendly annuities," etc., does not allow. (The Center for Long-Term Care Financing has proposed "LTC Choice" as a "simple, cost-free" method to target Medicaid to the needy while empowering the middle-class and affluent to pull income from their illiquid assets to pay for private long-term care insurance premiums or to pay directly for LTC services.) With a real spend down requirement in effect, Medicaid nursing home expenses would decline immediately, LTC providers would have more private payers overnight, sales of home equity conversion financial products would boom, and the demand for private long-term care insurance would soon skyrocket. These developments would also create new jobs and generate additional state and federal tax revenues. Most importantly, more Americans would immediately have better access to higher quality long-term care across a wider spectrum of home, community-based, assisted living and nursing home services. Medicaid would return to its originally intended role of providing a long-term care safety net for the poor. With fewer people to cover, it too could provide better access to higher quality care across the full spectrum of services.

So, are all the states leaping at this opportunity? No way. Some Governors are afraid to take responsibility for their Medicaid programs. The National Governors Association declined to embrace the proposal and asks instead for ever-bigger federal handouts. So-called senior advocates such as the "Families USA" organization bash the Administration proposal as "block grants" through the back door. They point out that although states would get more money in the short run, Medicaid would no longer be an open-ended, unlimited "entitlement" in the future.

The saga of the Bush/Thompson Medicaid reform package is on-going. What follows are germane parts of the HHS press release announcing the proposal, excerpts from the news coverage so far, and a sample of the opposition's "grassroots" mobilization effort. LTC Bullets will keep you posted on future developments.


Date: January 31, 2003 For Release: Immediately Contact: HHS Press Office (202) 690-6343


"HHS Secretary Tommy G. Thompson announced today that the President will propose a sweeping new plan to enable states to improve health insurance coverage for low-income Americans.

"The plan gives states the upfront investment and flexibility to design health care programs that best meet the needs of their citizens and expand coverage to more people, including the mentally ill, chronically ill, those with HIV/AIDS and those with substance abuse problems.

"Secretary Thompson is consulting with governors in developing the new plan, which would be optional for states. The plan would:

o Provide an estimated $3.25 billion in extra federal funding for Medicaid in fiscal year 2004, with $12.7 billion in extra funding over seven years. Federal funding for Medicaid and State Children's Health Insurance Program (SCHIP) would be provided in annual allotments, with one allotment for acute care and another for long-term care.

o Preserve comprehensive benefits for 'mandatory' groups, while giving states expanded flexibility to tailor coverage for "non-mandatory" recipients and services. The proposal would be built on the SCHIP model -- under SCHIP's flexible benefits, more low-income children and families were provided health care coverage than would have been possible using traditional Medicaid rules.

o Encourage coverage for whole families, not just the children in a low-income family; and encourage 'medical homes,' so that all the members of the family are treated by the same providers, whenever appropriate.

o Support increased use of home and community based services for Americans with disabilities, enabling them to be served outside of institutional settings -- including older Americans needing care that can help prevent premature use of nursing home care.

"The plan would also require maintenance of effort, so states continue to invest and maintain their commitment to health care.

"Secretary Thompson said the increased near-term funding, combined with flexibility similar to the SCHIP program, would help states preserve the benefits they now provide beyond the mandatory Medicaid population. By infusing extra federal funds quickly into state programs, the proposal would help protect beneficiaries who face loss of coverage when states are forced to cut back their Medicaid spending and would create opportunities to extend coverage.

"'The time to modernize Medicaid is here,' Secretary Thompson said. 'The states' budget crises are threatening the progress we've made in expanding health insurance, and at the same time the old Medicaid rules are a straight-jacket, restraining creative new approaches that could preserve coverage and expand it to more Americans in need.'

"Secretary Thompson compared the need for improving Medicaid with the successful movement for welfare reform. 'We need to bring the same clear-eyed spirit of innovation to Medicaid that we brought to welfare,' he said 'We need to leave behind the old definitions and look at how we can better serve today's beneficiaries.' . . .

"'Spending increases in Medicaid have been driven especially by the optional services and populations covered by states. About one-third of Medicaid recipients are 'non-mandatory,' added to coverage at state option and subject to being dropped from coverage. Moreover, two- thirds of Medicaid spending is on non-mandatory groups or optional benefits. 'Mandatory' recipients are those who are entitled to Medicaid by law, especially children from very low-income families, and low-income people with severe disability. Institutional services for people with disabilities and older Americans in nursing homes are especially costly, and those receiving such services often would prefer home or community based care. An important part of the finalized new plan should focus on encouraging home and community care, and preventing or delaying inappropriate institutional care, Secretary Thompson said. . . .

"'We need to stop tying our own hands in the Medicaid program, letting old rules prevent us from taking actions that would work better for everyone,' Secretary Thompson said. 'We need to be creative. We could stretch our dollars much further and serve those who need our help better. The states have shown they can do it, and we need to take what we've learned and move forward.' . . .


Note: All HHS press releases, fact sheets and other press materials are available at


Robert Pear, "Medicaid Proposal Would Give States More Say on Costs," New York Times, February 1, 2003,

"WASHINGTON, Jan. 31 - The Bush administration proposed fundamental changes in Medicaid today that would give states vast new power to reduce, eliminate or increase benefits for millions of low-income people, including many who are elderly or disabled.

"The proposal, coming at a time when states face huge deficits, would do away with federal rules that now apply to one-third of all Medicaid recipients and two-thirds of all Medicaid spending.

Tommy G. Thompson, the secretary of health and human services, said states would have 'carte blanche' to alter Medicaid coverage for these recipients.

"The administration proposal would preserve comprehensive Medicaid benefits for welfare recipients, poor children and certain other groups who are automatically eligible for Medicaid under current law.

"But states could alter Medicaid benefits for other recipients, Mr. Thompson said. States could, for example, charge higher co-payments to some beneficiaries, cut benefits in some counties and set different eligibility criteria in different parts of a state. . . .

"'The time to modernize Medicaid is here,' Mr. Thompson said. 'The states' budget crises are threatening the progress we've made in expanding health insurance. The old Medicaid rules are a straitjacket, restraining creative new approaches that could preserve coverage and expand it to more Americans in need.' . . .

"Democratic members of Congress and advocates for the poor denounced the proposal, which is subject to approval by Congress.

"Sheldon V. Toubman, who provides legal services to the poor through the New Haven Legal Assistance Association, said: 'The Bush administration proposal would signal the end of Medicaid. It would destroy the basic entitlement to essential services for a very vulnerable group of low-income people whom the states have chosen to cover.' . . .

"Under the proposal, Secretary Thompson said, states would see "a reduction in their Medicaid expenditures." But, he added, the federal government would increase its contribution by $3.25 billion in 2004 and $12.7 billion over seven years.

"In the three years after that, Mr. Thompson said, states would receive less money than under current law, so there would be no net cost to the federal government over 10 years. . . .

"The Bush proposal would give states a fixed amount of federal money for the millions of people whom states have voluntarily decided to cover under Medicaid. . . .

"The federal Medicaid law now sets minimum national standards for eligibility and benefits. For years, states have been allowed to deviate from these standards, but they needed permission from the federal government, which often imposed stringent requirements meant to protect beneficiaries. Under the proposal, states would no longer need such waivers of federal law.

"Federal Medicaid spending rose 13.2 percent last year, to $147.5 billion, and states are estimated to have spent $110 billion on the program. From 1997 to 2002, Medicaid grew an average of 9 percent a year, and the Congressional Budget Office says spending will grow 8.5 percent a year under current law. Last year, Medicaid surpassed Medicare as the nation's biggest health insurance program.

"Democrats and some Republicans said the Bush proposal looked like a block grant for the 'optional beneficiaries,' who account for two-thirds of Medicaid spending. . . ."


Here's what the Families USA's Health Action Network had to say about the Medicaid reform proposal on February 24, 2003:

"Medicaid advocates,

"We need your help - again - to head off a Medicaid block grant. We need grassroots groups across the country to write open letters to their U.S. Senators and Representatives opposing the Administration's Medicaid plan. . . .

"Talking points:

"-State Medicaid programs need immediate financial help; the easiest way to do this is to temporarily increase the Federal Medical Assistance Percentage (FMAP), as provided in various House and Senate bills. Without help, we in [name of your state] are facing cuts such as [insert an example if easy, e.g. 3,000 children will become uninsured].

"-We oppose the Administration's Medicaid proposal. In the next year, it provides only about half as much money to the states as the FMAP proposals. It does not add any permanent new money to the program. In fact, over time it will limit the program, resulting in the denial of eligibility for those most in need. Arbitrary growth limits will mean that in the next recession, when more people would be eligible for benefits, they will not be able to get help. Medicaid will no longer be an entitlement, and benefits, eligibility, provider payments, and rights under the program will be unpredictable. [If easy, please insert something like, 'In [name of your state], this could mean cuts in benefits for people making as little as [$X].'] ('X' would be a figure such as the lowest dollar eligibility level to qualify for a type of Medicaid help.) Note to advocates: We need to make it clear that cutting 'optional' beneficiaries and 'optional' services can mean real hardships.


Your organization (and hopefully other organizations)


Robert Pear, "Governors Seek Aid From Congress and Decline to Back Medicaid Plan," New York Times, February 26, 2003, .

"WASHINGTON, Feb. 25 - Rebuffed by President Bush, the National Governors Association decided today to seek fiscal assistance from Congress, and some lawmakers said they would be willing to help states with the growing costs of Medicaid, education and domestic security.

"After earlier partisan disagreements, the governors came together in support of a policy that says the federal government should provide more money for states to deal with requirements imposed by federal law. The governors did not request a specific amount, but the cost of their recommendations for education and domestic security could easily exceed $15 billion a year.

"The governors did not endorse Mr. Bush's proposal for sweeping changes in Medicaid, the health program for 45 million low-income people. Instead, they decided to negotiate with the administration to see if they could agree on legislation to slow the growth of Medicaid spending, which is financed jointly by the federal government and the states.

"The outcome was a setback for Tommy G. Thompson, the secretary of health and human services, who said last week that he wanted and expected the governors to endorse the president's Medicaid proposal. . . ."